Bloomberg Response

The December 4, 2007 Bloomberg article titled “State pension fund’s risky debt at $1 billion” used broad generalities, gross overstatements and outdated information to report on the Florida Retirement System (FRS) pension fund. This story created unnecessary anxiety, particularly for state employees and retirees whose retirement funds are invested in the $138 billion fund. I believe a clarification is owed to the people of Florida.

First, the FRS has no assets in any of its investments that are backed by sub-prime mortgages. Any mortgage-backed assets held by the fund are supported by collateral consisting of prime and near-prime mortgages. The State Board of Administration (SBA) is charged with maintaining the security of pension funds and has done so with exceptional results for several years running. It is of particular importance to note that Florida’s pension fund was recently rated the highest performing fund in the nation.

Second, of the approximate $138 billion fund value, only $756 million, or half of one percent, consists of lower grade investments. Even if these investments were sold at a loss – which is highly unlikely – they would have minimal impact on the overall profitability and the rate of return of the fund.

Third and finally, the Bloomberg article inappropriately compared the pension fund’s long-term portfolio with the short-term and dynamic investment pool that experienced heavy withdrawals last week due to a run on the funds. Withdrawals from the Local Government Investment Pool (LGIP) escalated at a significant pace over the past few weeks, decreasing the pool’s original balance of $27 billion to $14 billion. The SBA’s Board of Trustees, of which I am a member, acted quickly and with authority to soothe investors’ concerns and to stabilize the fund. It is important to note, however, that a comparison between the LGIP and the FRS is impossible to make, as the FRS is a long-term portfolio with current at-risk holdings that appropriately include assets such as high yield bonds and venture capital. These holdings are specifically intended to accomplish the structured diversification which the SBA has a fiduciary responsibility to provide.

The Bloomberg article has succeeded in creating a profoundly negative psychological effect among many state employees and retirees who believe their retirement monies are in danger. Fortunately for the State of Florida and its employees, both current and retired, the FRS pension fund is secure and will remain so, despite what appears to be an attempt to sensationalize an issue to the detriment of our public servants.